College graduates: supply and demand

In response to a new study finding that only a small portion of 2009 college graduates had jobs lined up, the National Journal posed the question How Can Colleges Help Graduates Pursue a Career? EPI research associate Richard Rothstein argued that the problem rests not with the preparation colleges were providing, but with larger economic trends, particularly a shortage of jobs. His complete response follows:

Colleges and other educational institutions can influence which students get the more highly-skilled jobs that are available. But colleges and other educational institutions cannot, to a significant extent, affect the number of jobs that are available – highly skilled or otherwise.

This truth is obvious in our current economic crisis. Nobody can seriously believe that if colleges made graduates more attractive job candidates, this would cause the unemployment rate for college graduates to fall. If employers are now filling vacancies for recent college graduates in a number equal to only 20% of their class, surely this is not because graduates are insufficiently attractive as candidates. The unemployment rate for those with a college degree (including both mature workers and recent graduates) was 4.8% in May, up from 2.1% at the start of the recession, and higher than at any time since 1979.

These unemployment numbers are probably understated. Anecdotes abound that many young college graduates, though not technically unemployed, are forced to begin their careers as interns at low rates of pay and sometimes with no pay at all. This phenomenon does not seem to be a product of the current recession – it has apparently been growing even when the economy was strong. If there were truly an economic shortage of well-educated workers, employers would have gobbled up these undercompensated and uncompensated college graduates, at regular rates of pay.

The number of available jobs (including those that require college education and those that do not) depends upon the size and growth of the economy, affected in turn by demand-side factors such as the strength of consumer (public and private) demand and credit availability. Education reform cannot influence such factors. Yet while this truth is obvious in today’s economic crisis, at other times many observers forget it and assert a fiction: that if more students graduated from college as attractive job candidates, more would find highly-skilled jobs requiring college education. This fiction assumes that when our economy is not in recession, there is a shortage of college graduates available to fill jobs requiring college education.

But this fiction is just that. The Bureau of Labor Statistics has consistently projected that the number of college graduates in the U.S. labor market will continue to match (or exceed) the number of job openings requiring college education. Indeed, BLS finds that many of the largest areas of future job growth in the American economy are in occupations requiring little skill, not even a two-year post-secondary credential – waiters and waitresses, retail salespersons, truck drivers, janitors, home health aides. This reality will not be changed if only colleges could make their graduates more attractive candidates.

Many of those who see a skills crisis in the American economy, attributable to inadequate education, confuse the fastest growing job categories with the job categories having the largest openings. It is true that many (though not all) of the fastest growing categories require post-secondary education, but this fast growth starts from relatively small bases, so does not generate many new jobs for college graduates.

Others point to the gap in wages between college and high school graduates, a gap that at some (but not all) times during recent decades has grown, and conclude that this reflects a supply-demand imbalance. In reality, during much of the last 40 years, the wages of college-educated workers in science, technology, engineering and math have been stagnant or growing very slowly. The giant wage gains of college graduates in some recent years are attributable to big boosts in compensation of managers and sales workers (for example, in Wall Street and similar finance occupations). It is hard to take seriously a claim that the giant bonuses paid to finance workers in the last decade are indicative of a nationwide shortage of college graduates.

In actuality, the demand for college graduates has slowed considerably since the 1980s, even at times when the college-high school wage premium was growing. My colleague at the Economic Policy Institute, Lawrence Mishel, and I have, in previous work, noted that productivity growth in the American economy has been extraordinary until the recent economic crisis, especially in comparison to that of other industrialized countries. If the American workforce did not have sufficient skills to use the most advanced available technology, such productivity growth could not have been possible.

Much of our education policy in recent years has been driven by the inaccurate belief that if only all students could qualify for post-secondary education and then become “attractive job candidates,” all youth would then obtain well-compensated jobs that took advantage of these qualifications.

But our true challenge is quite different. When this recession is over, it will still be the case that attractive candidates for jobs requiring a college education will not be in short supply. And if we succeed in preparing more students for college, and supporting them as they complete it, an economic surplus of college graduates will grow. With hourly compensation for college graduates flat from 2002 to 2008, this can only mean that pay will start declining. It is already the case that new college graduates earn less and get less generous benefits than those at the beginning of this decade. The economic issue is not how to generate more and better-prepared college graduates. Rather, our challenge is to break a system where the best predictor of which students obtain a college education and access to the limited number of good jobs available is so easily predicted by the race, education, and material circumstances of those students’ parents.

In a contemporary environment where only 20% of college graduates can find jobs appropriate to their education and training, this inequity can only get worse. Confronting this inequity, in a social and economic system where occupational privilege is necessarily limited, requires changes in our social, economic, and educational institutions that go beyond improving the quality of preparation received by college graduates. For example, if we are serious about increasing the competitiveness of minority youth for a limited number of the most desirable jobs, we must make this competition more palatable for advantaged youths who, in greater numbers than before, may lose out. It is hard to imagine how losing can be made more palatable without making the consequences of losing less severe-ensuring that those with only a high school or associate college degree (roughly sixty percent of the workforce), and even college graduates who cannot find employment requiring a college degree, have jobs which are decently paid. This will require addressing the excessive income inequa
lity we’ve developed as a nation, not a topic usually considered by educators or education experts.

Nothing I have said here should be taken to minimize the importance of getting more young people prepared for college, and through it. We may have an economic surplus of college graduates, but not a cultural or civic surplus. There are many reasons to raise the educational level of our population besides workforce preparation. But the notions that we face an economic calamity if we don’t dramatically boost the number of college graduates, or that inadequate college preparation is stunting their access to jobs, is simply wrong.

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EPI is an independent, nonprofit think tank that researches the impact of economic trends and policies on working people in the United States. EPI’s research helps policymakers, opinion leaders, advocates, journalists, and the public understand the bread-and-butter issues affecting ordinary Americans.